Wednesday, November 28, 2012

"... and in response to any limits on deductions it could even fall by about
the same amount as the increase in the tax bill, according to John List
of the University of Chicago,
who recently reviewed the literature on this subject. Other studies
have suggested an effect about half as large. Even that smaller
estimate, though, suggests that limiting deductions to $50,000 a year
could easily reduce giving by tens of billions of dollars."

That's former Obama administration official Peter Orszag on proposals to limit the charitable deduction.

Patricia Cohen reports that there's been a (very sensible) settlement in the Rauschenberg bald eagle case: "the I.R.S. dropped the [$41 million] tax assessment; in exchange, the family was
required to donate [the work] to a museum where it would be publicly
exhibited and claim no tax deduction."

Wednesday, November 14, 2012

"Given Noland's assertion of her right under VARA to prevent use of her name in connection with plaintiff's [work], ... Sotheby's was within its rights to withdraw the [work] from [auction]."

Sotheby's has prevailed on summary judgment in the lawsuit brought against it by Marc Jancou. No link available at the moment. Jancou's claims against artist Cady Noland were not at issue on the motion, and so remain intact.

Tuesday, November 13, 2012

The National Geographic Society is auctioning off 240 pieces from its collection of photos and original illustrations at Christie's in December. The sale is expected to bring about $3 million and the proceeds will not be used for acquisitions. Does that make them repulsive?

As I've wondered before, how is it that some nonprofits hold their assets in the public trust and others don't? How are we supposed to tell the difference?

Monday, November 12, 2012

There was some presscoverage last week about the lawsuit brought by Takashi Murakami against his former dealer Marianne Boesky. I'm co-counsel to Murakami on the case.

A couple of points are worth clarifying/emphasizing:

The Daily News story says "Murakami is seeking compensation to be proven at trial." That's not what the case is primarily about. It's really about the right of an artist to control the production of his own work. Murakami left Boesky more than six years ago. There's no earthly reason why she should continue to print and distribute his work on her own.

And the Post says Murakami's claim is that Boesky "lent a wallpaper design he created to the Metropolitan Museum of Art without permission." That's not right either. She has every right to lend work she owns to whomever she'd like. The issue in the case, again, is whether she has the right to print additional sheets of the wallpaper on her own.

Q. It won't come as any surprise to regular readers of the blog that I thought your piece was terrific. If you were a museum director, I would put you in my Hall of Fame. One thing I particularly liked is how you emphasize that, to the art world, the needs of the parent organization are completely irrelevant. They don't matter at all. I've long thought that, rather than being impartial "arbiters" of the ethics of the situation, groups like the AAMD are just lobbyists for a particular point of view (namely that art is more important than any competing need the parent organization can point to). Do you think that's a fair assessment? Is the AAMD really just lobbying for their desired outcome?

A. I do think that’s a fair assessment, but it goes far beyond lobbying. As you know, the response of AAMD, AAM and others includes condemnation and punishment. I can appreciate, actually, the passion with which they take that position, although I don’t agree with it. But their apparent lack of appreciation for the fiduciary duties of trustees to do what is best for the parent organization and its broader mission, and the often vitriolic response, can cause them to look more like petulant children than collegial partners in addressing the difficult situation in which the parent organization finds itself. And, frankly, I think that harms their cause.

At the end of the day, trustees will do what is best for the organization and its mission. Indeed, the “settlement” reached in the Rose litigation does not limit in any way the ability of future trustees to monetize all or part of the unrestricted collection. The inflexibility of the position that the collection trumps all (including the survival of the museum), or that the museum trumps the competing needs of the parent organization, renders the professional associations and their rules essentially irrelevant when crunch time comes for a parent organization – or even a free-standing museum. A prudent trustee is not going to let the rules of a professional association (in some cases, such as Randolph, of which the museum is not even a member!) get in the way of doing what is best for the parent organization.

Q. I think that’s right. As I’ve noted from time to time, their position is a classic of circularity. Step 1: If you sell that work, we will sanction you. Step 2: It would not be a good thing for you to be sanctioned. Step 3: Therefore, you should not sell that work. You almost have to admire the chutzpah! But what do you think a more useful role for these organizations would look like? How could they stay more relevant?

A. I had a conversation with a museum director when I first started looking at this issue, and we were talking about the ethical rule on the use of proceeds of deaccessioning. When I asked whether there should be an exception where the survival of the museum was at stake, she replied, “Those museums deserve to die.” It was a stunning moment for me. And even more stunning when I later found that she was no outlier.

Yet this view persists, along with the naïve belief that objects in closed museums will find happy and welcoming homes in other museums. The experience of the Fresno Metropolitan Museum, in which the entire collection was sold for the benefit of creditors, should be a wake-up call to those who take comfort in that myth.

I think the professional associations become more relevant when they acknowledge that there are legitimate exceptions to the rule – some whose rationale cannot be denied without a complete loss of credibility. Illustratively, how can it be unethical for a museum to finance the purchase of an important painting for the collection (thereby keeping it in the public domain), by pledging the work as collateral while donors have time to raise the cash? How can it be unethical to sell the multiple duplicates of a particular object in the basement to other museums to raise cash to keep the doors open? The point is that, like most rules, there are factual situations that cry out to be exceptions. To deny them, undermines the rule itself, as well as the professional associations that seek to enforce it regardless of the circumstances.

But we’ve strayed a bit from the role of trustees in making decisions for the parent organization.

Q. So let’s come back to that. What is the role of a trustee in these situations, where, as you point out in your piece, her legal obligation is “to focus on the specific mission of the [parent] organization” … but, at the same time, there are these professional organizations (again quoting from your essay) “weigh[ing] in on these decisions with outrage and condemnation,” “relentlessly assert[ing]” that the interests of the museum trump those of its parent?
A. A prudent trustee will – or at least should – consider and give weight to the positions taken by the professional associations. These are serious people with considerable knowledge of their field, deserving of respect.

But the law is very clear. The trustees are bound by a duty of obedience, which you describe above, as well as a duty of due care - to act in the best interest of the corporation. In the case of academic museums, for example, the duty of trustees is to hold paramount the college or university and its educational mission. When times are tough and programs need to be cut or assets monetized, they will naturally look to all programs and all assets. It is not reasonable to think that they will or should hold the museum and its collections exempt from this process.

In my opinion, an astute museum professional will spend time and energy building relationships and posturing his or her museum solidly within the broader mission of the parent, rather than insisting that it be afforded special treatment or privileged status. No one does that better than Lyndel King at the Weisman Art Museum at the University of Minnesota. She also has an essay in our book that outlines her strategies in a very helpful way. Educating parent organization trustees about what the museum and its collections contribute to the broader mission in a way that makes it unthinkable that the museum and its collections ever be compromised – and building relationships across campus - is far more effective than relying upon the dictates of professional associations that are not binding on the parent organization or its trustees.

The Borough of Tower Hamlets in the East End of London has decided to sell a Henry Moore sculpture. "The Tower Hamlets council ... is looking at a potential sale price
estimated around $32 million, which would cushion it against cuts in
government funding that are forcing the council to make drastic trims
in its own budget." Repulsive!

Had a good time talking about the state of fractional giving at the Appraisers' Association's "Art Law Day" down at NYU this afternoon. Many thanks to Aleya Lehmann Bench and her team for putting together such a nice event.

Tuesday, November 06, 2012

UPDATE 2: More from Nicholas O'Donnell: "The decision does not say that an auction house has to disclose the seller as a matter of course. To the extent that reports have simplified it in that way, the criticism is correct, and a welcome clarification."

Friday, November 02, 2012

There
was an interesting Appellate Division decision last month involving the
application of the statute of frauds to auction sales. Nicholas
O’Donnell summarizes the facts here. It's been described as a “bombshell,” “monumental,” “potentially game-changing,” “mind-boggling.” But Jonathan Olsoff of Sotheby’s has convinced me that the decision is being misread.The Maine Antique Digest, for example, says
“the justices’ decision meant that for the sale to be binding on the
buyer, the name of the seller must be included in some part of the
invoice, memorandum, bill of sale, clerking sheet, or other document given to the buyer at point of sale” (my emphasis). Not so, says Jonathan:“The
court did not require disclosure of the name of the consignor during
the auction process. The decision deals only with the evidence that is
required if an auction purchaser defaults in paying and is sued by the
auction house. The court held that because the auction house in the
Jenack case refused to disclose the name of the consignor during the
litigation – when an order protecting the consignor’s confidentiality
could presumably have been obtained – the auction house failed to offer
sufficient evidence to establish its claim. Under the Jenack ruling, if
an auction house offers evidence that its internal records comply with
the requirements of Section 5-701 of the New York General Obligations
Law, it will establish its claim against a defaulting purchaser and will
be entitled to a court judgment requiring the purchaser to pay.”But didn’t the court say the “auctioneer’s memorandum” must include the name of the seller? Again, Jonathan says no:“It
seems clear enough that the Court based its holding on the fact that
the auction house ‘failed to produce any writing identifying consignor
“#428” by name, either in response to defendant’s discovery demands or
in opposition to the defendant’s motion for summary judgment.’ If it
was necessary for ‘the name of the person on whose account the sale was
made’ to be on the ‘auctioneer’s memorandum,’ the production of another
writing in discovery or on summary judgment would be immaterial. But the
Court did note that and, just as it said that the absentee bid form
could satisfy the writing requirement for the bidder, it clearly meant
that the consignment agreement or other ‘writing identifying the
consignor’ when ‘taken together’ with the auctioneer’s memorandum with
the corresponding number would satisfy the statutory requirements
requiring ‘the name of the person on whose account the sale was made.’
Further support is found in the form of the summary, in which the Court
notes that the deadbeat bidder showed ‘prima facie’ that the memorandum
failed to include the consignor’s name and that the auction housed
‘failed to raise a triable issue of fact in that regard.’ If a name on
the auctioneer’s memorandum was necessary, there would be no way for the
auction house to raise a ‘triable issue’ in any way. The auctioneer’s
memorandum either had the consignor’s name or it didn’t. If a ‘triable
issue’ could be raised, it would have to be raised by ‘another writing
identifying’ the consignor. But that would apparently have been enough,
as that writing, plus the memorandum, taken together, would satisfy the
statute.”That seems right to me, but for a second opinion I went to my friend Jo Laird, formerly General Counsel at Christie’s. She agreed with Jonathan:“In
further support of the argument, note that the court held that with
respect to the buyer the existence of a direct paper trail that could
identify the buyer by his number in the clerk's book was sufficient to
satisfy the statutory requirement. There is no reason why the court
would not have made the same decision with respect to the seller had the
auction house provided the same kind of paper trail with respect to the
seller. In fact, the court seemed to indicate that it would have by
noting the gap in the evidence presented.”Jo adds that “the real danger here is not the opinion itself. It is appealing the case to the Court of Appeals. [There are reports that Christie’s is ‘joining in Jenack's appeal to New York's highest court’ -- DZ]
On the record as it appears to stand in the case (i.e., with the
house's failure to produce the consignment agreement, etc.) the appeal
risks getting a worse opinion from a court with broader jurisdiction.
Maybe not a good idea.”